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The International Monetary Fund has added its voice to the growing chorus of forecasters that expects Canada’s economy to slow this year.

The IMF forecast came amid a report issued by Statistics Canada showing that factory shipments soared by an unexpected 2.6 per cent in February.
Automotive sales lead the charge, gaining 13.5 per cent during the month.
TORONTO STAR

The International Monetary Fund has added its voice to the growing chorus of forecasters that expect Canada’s economy to slow this year.

The Washington-based global financial group also urged Canadian policymakers to support growth in the short term, and push out interest rate hikes until the economy is stronger.

“The main challenge for Canada’s policy-makers is to support growth in the short term while reducing the vulnerabilities that may arise from external shocks and domestic imbalances,” the IMF, as the group is known, said in its latest report on Tuesday.

According to the forecast, Canada’s economy will expand by about 1.5 per cent this year. That’s down from its prior estimate for growth of 1.8 per cent, issued in January.

It’s also more in line with estimates from Canada’s big banks, and below the Bank of Canada’s call for 2 per cent growth.

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The IMF “is joining in the chorus of voices that are saying that Canada’s economy is slowing,” said Emanuella Enenajor, economist at CIBC World Markets.

The IMF also has some advice for the Bank of Canada – don’t think about tightening monetary policy until the economy improves.

“The current monetary policy stance is appropriately accommodative, and the beginning of the monetary tightening cycle should be delayed until growth strengthens again,” the report said.

The Bank of Canada is expected to leave its benchmark rate unchanged at 1 per cent on Wednesday.

Central bank governor Mark Carney has recently backed off language suggesting that interest rate hikes are around the corner. Canada’s big banks are forecasting rate increases in the second half of 2014.

The IMF warned that growth could falter if the European debt crisis worsens, the U.S. recovery stumbles, or global demand for commodities declines.

“Although fiscal consolidation is needed to rebuild fiscal space against future shocks, there is room to allow automatic stabilizers to operate fully if growth were to weaken further,” the report said.

In his latest budget, Federal Finance Minister Jim Flaherty stood by his commitment to eliminate the $25.9 billion federal deficit by 2015.

While the IMF has urged countries in the euro zone to tackle their deficits aggressively, it suggests that Canada has more room to maneuver.

That’s not surprising given Canada’s relatively low debt-to-GDP ratio and the overall recovery in the labour market since the recession, Enenajor said.

As well, the IMF no longer views Canada as the growth engine of the G7 economies. While bettering the European members, Canadian growth is projected to play second fiddle to the U.S. in 2012, 2013 and 2014. Growth in “other advanced countries” not in the G7 club, such as the Scandinavian nations and Australia and New Zealand, are also projected to outperform Canada.

Going forward, it predicts the Canadian economy will continue to be held back by high household debt levels and a cooling housing market.

The IMF forecast came amid a report issued by Statistics Canada showing that factory shipments soared by an unexpected 2.6 per cent in February.

Automotive sales lead the charge, gaining 13.5 per cent during the month.

The data bodes well for February’s GDP, but does not alter the view of the slowing trend in the economy, Enenajor said.

“There’s scope for some cautious optimism with the manufacturing shipments numbers out today, but the outlook for the Canadian economy is still one of deceleration this year versus last,” she said.

Statistics Canada also reported that there were 200,000 job vacancies among Canadian businesses in January, a decrease of 22,000 from January, 2012.

There were 6.5 unemployed people for every job vacancy, compared with 6.1 per cent one year earlier, StatsCan said.

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